Coming to terms: Retirement vs. financial independence
Last Sunday, I shared the transcript of a recent conversation between me and Mr. Money Mustache. We talked a lot about retirement and what it takes to get there.
“You and I are both supposedly retired, and yet we’re doing this work here where we’re talking to each other about money,” I said at one point. Pete and I have both accumulated nest eggs that would allow us never to work again. We both considered ourselves retired. Still, both of us have elected to continue doing work for money.
In his reply, Mr. Money Mustache explained it like this: “This is the whole point. [During retirement,] you’re not going to sit around doing nothing unless that’s your true personality type…Retirement to me just means you’re free to do what you really want to do.”
Are we truly retired if we continue to work for money? We think so, but not everyone agrees. In the comments on that conversation, Patrick wrote:
I don’t understand what the definition of retired is. If you get to the point where you are financially independent and don’t have to work, but continue to so — did you really retire early?
[…]To me, retiring is stopping doing work for pay. When people stop doing something for pay that they don’t like and change to something they do like doesn’t mean they’re retired.
Patrick isn’t the only one who struggles with a definition of retirement that includes work. To some, retirement specifically means that you no longer work for money — whether you enjoy it or not.
Note: The following section is taken directly from the Be Your Own CFO guide, which is a part of the year-long Get Rich Slowly course.
Four Types of Retirement
To many people, retirement means one thing: reaching a ripe old age — 60 or 65, usually — and leaving the workforce to enjoy the money saved over the preceding few decades. This money might come from many sources: a company pension, personal savings, government benefits. In this view, retirement is a time to travel and try things you never had time to do before.
While that’s how most people approach retirement, it’s certainly not the only way.
Early retirement is exactly the same as a conventional retirement, but it doesn’t come at the end of life. Instead, it’s achieved at age 50 or 40 or 30. To retire early, you have to save more than average. To retire very early, you have to save a lot more than average. Some folks believe early retirement is a pipe dream, but it’s not. If you can boost your saving rate to 50 percent — which is tough but possible — you’ll probably be able to retire in about 15 years.
Another option is semi-retirement. When you’re semi-retired, you continue to work — but on your own terms. You have significant savings– maybe even enough to be truly retired — but you choose to earn an income so you don’t have to draw down your savings as quickly. I consider myself semi-retired: I could probably quit working and live out my days happily, but I opt instead to do meaningful work. Doing so lets me travel more than I might otherwise be able to. Bob Clyatt explores semi-retirement at length in his book Work Less, Live More.
In The 4-Hour Workweek, Tim Ferriss describes another approach to retirement. He argues that instead of deferring decades of retirement until the end of our lives, we’d be happier, more fulfilled, and more productive if we instead redistributed this time in the form of mini retirements throughout our careers. These career breaks allow us to explore new people and places while we’re still young and fit, and while we still have time to change course if we discover a new opportunity.
As you can see, retirement comes in a variety of shapes and sizes. There really isn’t one definition of the term. For people like Patrick, retirement means you no longer work for pay. But a lot of folks who meet this definition would chafe at the notion that they’ve retired.
In Work Less, Live More, Bob Clyatt writes:
Plenty of people are uncomfortable using the term “retirement” to describe their lives after leaving full-time work, even if they are already collecting Social Security. For them, that word conjures up images of frail elderly people who have hung up their spurs…They think of themselves as fully engaged in living life, not withdrawing from it in any sense.
In the end, it doesn’t matter how you label your lifestyle. Whether you’re retired or not, all that matters is making sure your work and spending match your mission statement. If you do, you’ll be happy.
Forging Financial Independence
Ultimately, “retirement” is a loaded word, and I try not to use it except in casual conversation. I prefer to talk about “financial independence,” which is essentially the same idea but without the baggage. (This is precisely why I use the term “global climate change” instead of “global warming.” The latter is more common, but it carries so much baggage that it tends to cloud conversations about an important subject.)
Financial independence occurs when you’ve saved enough to support you for the rest of your life without needing to work for money. You might choose to work for other purposes — such as passion and purpose — but you no longer need an income to meet your expenses.
Re-framing the conversation in terms of financial independence has another advantage. There are clearly different degrees of financial freedom, so it’s possible to talk about progress along a sort of FI continuum.
- At one end of the spectrum, you are completely dependent upon others for your financial security. As a child, for instance, you’re dependent on your parents for support.
- When you no longer need financial support from your family, you achieve one degree of financial freedom. You still might be dependent upon other creditors (your bank, your credit card company), but these are companies and not people.
- When you break free from the chains of consumer debt, you achieve another degree of financial freedom.
- Further along the continuum, you achieve greater freedom when you do things like eliminate your mortgage or have enough F-U money saved that you’re no longer glued to your job.
- At the far end of the spectrum is complete financial independence. Here, you have enough in savings that you could fund your lifestyle for the rest of your life.
How much do you need to achieve full financial independence? The answer depends on the assumptions you make about inflation, investment returns, your lifespan, and so on. However, I’d argue that in general, the following holds true:
When you’ve saved enough to fund 25 years of your current lifestyle, you’ve achieved financial freedom. If you’re cautious and/or make conservative assumptions, you might want to save 30 years of expenses before considering yourself financially independent. If you’re aggressive and/or make bold assumptions, you might save only enough for 20 years.
Here’s another way to look at it: Making standard assumptions, for every $25 you have in retirement savings, you can afford $1 of spending per year. If you have $2,500 saved, you can fund $100 of annual spending. If you have $25,000, you can fund $1,000; $250,000 funds $10,000; $2,500,000 funds $100,000. And so on.
Note: These numbers highlight the power of frugality. If you spend less, you have less to save before you can retire — and you’ll save it more quickly!
What about you? What does the word “retirement” mean to you? What’s the difference between retirement and financial independence? How will you know when you’ve achieved financial independence? And what will you do once you get there?
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There are 58 comments to "Coming to terms: Retirement vs. financial independence".
I love that people debate what retirement means — I think it’s a sign that we have more options than ever before.
One of my older colleagues was recently telling me how she would have done things differently by saving earlier and entering the pension plan earlier.
“But no one talked to women about retirement planning in those days,” she explained. “Companies assumed you were just going to go off and have kids.”
I don’t think you’ll ever get everyone to agree on the terminology, but the fact that more people are discussing their long-term financial goals is a good thing, IMHO. I tend to use the word “retirement” in casual conversation because more people understand the concept, but I frame my goals in terms of those later stages of financial independence.
I love the idea of mini-retirements. When my hubby and I moved to a new state in 2012 we took two months off before starting our jobs to travel. We did an awesome road trip throughout the US. I’d love to continue to do that again but it’s tough to manage because of the health insurance aspect. COBRA is expensive, but you can’t really go without insurance. All the more reason for us to become financially independent as soon as possible…
I like this idea too. I hadn’t really heard it or thought of it until now, but it makes sense to take mini-breaks in your career throughout your life, assuming you have the savings and confidence to pick it up back up again when you are done.
This is definitely an idea I need to think over.
I remember reading that more and more Europeans are adopting a career track where they take more time off during their career and work longer. It flips the idea of “early retirement” on it’s head.
Dee,
I also love the mini retirement idea. Ideally, my wife and I will be able to semi-retire in our early forties. I hope to squeeze in some type of mini retirement within the next 3-4 years.
Go to your local library and pick up a few of the John D. MacDonald books featuring private eye Travis McGee. McGee was taking his retirement a little at a time. When he did a job, he got paid, squirreled it away and lived on that until it was time to work again. Fictional, maybe, but certainly a model of “mini-retirement.”
I also love the mini retirement idea, because ideally all of us will be retiring soon.. For me retirement and financial independence has a similarity, they’re the same in terms of you’re not working anymore because you’ve already saved enough money to support you for the rest of your life..
Economists define retirement as “self-defined retirement”. That means that when Mr. Money Moustache or Retire by 40 says they’re retired, even when one runs a contracting business and blog and the other is a SAHP/blogger, they’re both retired. And if someone else in the same situation says they’re a part-time contractor/blogger or SAHP/blogger, then they’re right too. When Mr. Money Moustache says that everyone who does what he does is retired, then he’s wrong, by economist standards, unless he’s able to convince them to also self-define as such.
FI has a more solid definition to it.
We talk more about this topic here: http://nicoleandmaggie.wordpress.com/2013/04/08/on-definitions-retirement/
Sidenote: It’s amusing to see GRS becoming the MMM advertising blog. Though I have to admit, our most popular post is the one that has Mr. Money Moustache in the title.
Haha. “The MMM advertising blog.” 🙂
Actually, it’s interesting to browse the archives because it’s possible to trace the maturation of my financial philosophy by looking at the books/blogs I wrote about at any given time. In the early days, I talked a lot about Dave Ramsey and Your Money or Your Life. Later, I talked a lot about The Simple Dollar and The Tightwad Gazette. Later still, I was hung up on All Your Worth and John Bogle’s work. Today? Lately I’ve been citing The Millionaire Next Door and Mr. Money Mustache in my interviews and writing.
I wonder whose work will influence me next?
I prefer financial independence to retirement. Who wants to wait until their 70 before they can retire on a lowly pension. I would rather put the work in now, build enough capital and live off the income. Good post.
I think the terms are tied together. For me retirement means not having the need to work for money any longer, because I have become financial independence. I still would continue to do work, just not have to chase the paycheck at the end of the week.
Another dynamic that JD didn’t touch upon is those who are of traditional retirement age are generally given a pass on “misuse” of the word retirement if they are FI and continue to work for pay in some form or another. We know tons of folks in our area of Florida that have “retired” at a traditional age down here, but continue to “work” or earn income outside of their completely passive investments. And I don’t hear anyone challenging the definition of their investments.
To me retirement means not HAVING to work for money unless you choose to. I guess financial independence is a better term but I don’t understand why the word retirement rubs some people the wrong way. Some people retire when they reach retirement age but continue to work because they want to, are they not retired?
If you work because you want to and not because you have to then to me you could say that you are retired, no matter what age.
Completely agree. This is such a non-issue, to me. The commenter mentioned in this article, Patrick, was being nitpicky, in my opinion.
Retirement means whatever the hell you want it to mean, as nicoleandmaggie explain above. If you call yourself retired, then whatever it is you’re doing at that point, that’s how you define retirement. Good enough for me.
While I don’t think it’s a big deal, when you create your own definition that is rather broad, it can create confusion. For example, is my dh “retired” because we could technically live off of my salary? He doesn’t HAVE to work but chooses to because working is a part of his identity and he enjoys his job.
There are a lot of dual-income couples where one doesn’t “need” to work but is doing so because of the joy it brings. Alternatively, retiring looks solely to that person. My step-mother actually retired because she quit her job and relied on her saving/pension/etc even though my dad still needed to work until his savings were sufficient for him to retire.
It’s funny that so many people make a big deal about a single word. Many of my golfing league friends are “retired” because they retired from their 30+ year career jobs. But most of them still work at golf courses, which gives them the fringe benefit of golfing all they want for free at the courses they work at. I personally consider that to be semi-retired. They retired from their career job, but work when/how much they want.
After 22 years in the Air Force, I “retired”. But contrary to popular belief, military retirement is not enough to live on for the typical enlisted person. I retired at the most popular enlisted pay grade to retire at, i.e. E-7 (AF Master Sergeant, Army Sergeant First Class, Navy Chief Petty Officer, Marine Gunnery Sergeant). After taxes and other deductions, that leaves me with a little less than $2100 per month, which is not enough for my family of three to live on. Thus, even though I am “retired”, I am not financially independent.
Financial independence has a lot more meaning to me than retirement for the reasons stated above. I am currently working as a government contractor, which is a very popular career choice for “retired” military people. It is not the most secure of jobs. When contracts run out, you can be laid off as I was last fall. My current contract runs until Oct, 2015. By that time, I hope to have completed the third bullet on JD’s list, and will be working on the fourth.
There is a possibility for a very lucrative follow-on contract to my current contract. It is a 3-5 year contract which would definitely take me well into the fourth bullet on JD’s list. Also, this same company would probably keep me on after the contract was over. My plan at that point is to remain with the company until my son finishes school. He is currently nine years old. So in about 13 years, I could reach the far end of the financial independence spectrum. That would put me at age 62.
Great article, JD!
I think it’s awesome that GRS has been (sometimes) responding to readers’ comments and criticisms so quickly with articles to address them. It really keeps people engaged in the GRS community!
“He argues that instead of deferring decades of retirement until the end of our lives, we’d be happier, more fulfilled, and more productive if we instead redistributed this time in the form of mini retirements throughout our careers. These career breaks allow us to explore new people and places while we’re still young and fit, and while we still have time to change course if we discover a new opportunity.”
*THIS*
I am in the midst of structuring the rest of my life to allow for at least 3-4 more careers, with 1-2 year breaks in between to use as a sabbatical/ R&R of sorts to prepare for the next change. My first one comes up in 2017…can’t wait! I much prefer to work with frequent and lengthy breaks vs working for a long period and not working for a long period because I get bored quickly with either option. My goal is to always be engaged and at 100% in my chosen field.
Regarding how I feel about the term retirement…It is a slippery slope and it depends on the person. I know that sounds like a cop-out answer but personally I see retirement to mean you are not earning enough to sustain your current life-style without using savings. If you are consistently earning income versus sporadic income, or you are taking a break with the intention of returning full-force to working, I consider it semi-retirement. If you work but don’t have to in order to sustain your needs and wants for the rest of your life, then that is financial independence.
I don’t really buy the whole “I’m not working because I have to, but because I want to. Because I don’t intend to make money for the purpose of supplementing my lifestyle, I am retired”.
That’s like saying “I’m not eating this cupcake to provide fuel for my body, I just think it is delicious. Because I don’t intend to consume the calories for the purpose of providing fuel for my body, they don’t count”. But they do, oh they do.
Very clever!
I am doing a little bit of that too but on a smaller scale. I get bored very quickly of working, maybe because I am young (26).
My boyfriend and me both works in the film industry and it’s always based on contracts, from 6 weeks up to 1-2 years. Between each contract we always take at least a month off. It gives us a chance to come back to work full of energy and passion for a job that is very demanding.
At the moment we could afford 2 years off (or 5 if we moved to Asia). But I would rather keep working 6 to 10 months a year than go through all our savings. We planned our life so that all we need is his income and whenever I work it’s just candy! All of it goes in savings and financing the next trip.
I can’t really call that retirement or even mini-retirement. People just think I am ridiculous if I mention such a thing. I am so young it just doesn’t make sense to most people. Financial Independence is really more what it is. We are not totally there yet. But eventually…
I think the concept of tying financial independence solely to savings is dangerous.
Twenty five years of living expenses saved up sounds like a lot of money, but if you live a long life you may easily run out of money if you have only 25 years of living expenses, especially if you stopped working at a young age. Even if you stop working at age 60, what happens if you live beyond age 85? You are out of money at the worst possible time. It’s even worse if you stop working at age 40!
I believe there are 3 options to address this:
1) Define financial independence/retirement as:
“passive income exceeds living expenses”.
This condition allows a person to survive indefinitely, and doesn’t necessarily require much savings at all (although it’s still good practice to have savings for cushion). This also might require a person to develop the skill of creating passive income, which is a valuable skill to have in case you need or desire passive income in the future.
2) Choose a far higher number for years of living expenses saved up. For example, choose a number that allows you to live to be 110 years old. In this case you would need
Savings = (110 – your current age) * annual living expenses
as your savings target.
This is unappealing because it may require 50-70 years of living expenses saved, but it is a more realistic number if you are not counting on income.
3) Use a combination of passive income and savings as your targets for being able to stop working. In this instance, your passive income does not exceed your living expenses, but savings makes up the balance. In this case
living expenses gap = annual living expenses – annual passive income
and
savings target = (110 – your age) * living expenses gap
Didn’t mean to write another article in the comments, but I wanted to address this.
My name is not Reggie, but I could have written this as my retirement story.
I looked at how my savings could produce passive income streams rather than just a big pot of money from which to draw living expenses.
At 68, I have been retired over three years and the plan is working just fine.
I knew early on that I could never save enough to live off that money alone; I have good genes and a long life looks likely. (My father died at 96, all his sisters and brothers were 80-91 when they died and three of my four grandparents were in their mid-80s; my mother, sister and one grandfather died young in accidents).
When my father had been retired 30 years, he said he was proud that since retirement “I never lifted a finger (as in work or a job of any kind) to make a dollar.”
I’m trying to follow in those footsteps.
Here’s something to keep in mind with the concept of having 25 years’ worth of living expenses saved, and withdrawing only 4% per year: Your savings continue to grow. It’s not like all growth stops (unless you move all your money into a lowly savings account).
You won’t deplete all your money in 25 years.
In fact, assuming an average annual growth rate of over 4% (which is a good assumption, even considering that there will be downturns), if you withdraw only 4% per year, your savings will grow rather than shrink.
Dave,
I’m not sure what investment rates of return you are assuming (or what investments will generate those returns), but whatever your assumptions are, they matter a great deal.
Investment returns are variable and can even be negative, so I wouldn’t assume that you will return more than 4% per year and that your savings will grow.
If you have that assumption, and you run into a year of big losses like 2008 while you are in your non-working years, you could be in serious trouble, especially if you are no longer able to work and/or your skills are no longer marketable because you have been out of the workforce for many years.
I think that planning for retirement (early or otherwise) requires that you understand the risks you face and have a plan for managing those risks.
I think people are hung up that the term “retirement” should mean we golf everyday, and/or sit around and watch tv. While MMM and J.D are FI and “retired”, they now get to boost their nest eggs with hobbies they enjoy by making a decent amount of money while doing so. Others might assume they’re still working 40+ hours a week being retired, when in acuality, you might be doing about 20 hours of work per week, doing something you thoroughly enjoy, and making money while doing it. Good up the great work, J.D. and MMM!
While yes, we can all make things mean whatever we want (e.g., the internet’s declawing of “sarcasm” to mean mere “irony” or “humor” ) –and that’s how language evolves anyway– I feel that “retirement” still means, basically, a withdrawal from something.
The word retirement for me has connotations of fat boxers being put to pasture, or horses sold to the glue factory… or glue factories shutting down because they were outsourced elsewhere. Old battleships turned into museums. It also holds connotations of people on the edge of despair waiting for their social security checks. Retirement doesn’t even seem like a choice– we have the term “forced retirement.” Sure makes me not ever want to be “retired”!
When Ferris talks about mini-retirements, he’s talking about sabbaticals, long vacations, adult walkabouts. He knows he has to restart the machinery and return to production at some point.
So yes, I think “financial independence” is the more clear and unequivocal term to describe the situation many of us would like to achieve regardless of age/work/no work/careers. It’s a lot less confusing. It doesn’t imply quitting, withdrawing, or shutting down anything. It has all the right connotations– choice, freedom, a lack of want, and for sure not having to wait for the social security check to arrive to keep the lights on.
Indeed, retirement has negative connotations to me, too, such as “tottering on the brink of the grave”. I’m currently on an extended vacation.
Since I left work over three years ago, I’ve told people I’m “chronically unemployed.”
It doesn’t sound as old as “retired.”
ETA This posted as a reply to El Nerdo, but it really isn’t one.
To retire literally means to withdraw or retreat. In everyday use, retiring means leaving the workforce. If that is not what you are doing, you should call it something else.
My stepmother retired early when my father’s work took them overseas. She has done many things since then – travel, volunteer, engage in hobbies – but she has not re-entered the workforce. My father has now retired too, and though he does occasionally work for money, he is not part of the workforce. He does not have a job or a business. He is retired.
My parents are also financially independent, but given their circumstances, it makes more sense to say retired. JD is financially independent, but he is not retired; he has not stopped working, though he may have taken one or more brief sabbaticals. I understand the desire to repurpose the word ‘retirement’ – so few of us currently working will be able to retire in the conventional sense – but the language exists to describe what we are doing instead, and we should use it.
This is how I feel. I understand it maybe feels good to say I’m retired at age “whatever”, but the fact of the matter is whether or not the working “retired” folks NEED the money they are earning is irrelevant…are they using it or planning to use it, is the question. Because if they use it to accomplish some thing or some goal, then ultimately they NEEDED to have that money (which they earned working) in order to consume or pay for whatever it is they paid for with it (even if it’s to add to investments that will eventually fund future ventures).
Perhaps if it was all given away and not consumed at all, you can say you are retired and do volunteer work (not saying that’s what they should do!). But IMO you don’t really get to say “retired”, not if you want to be true to the meaning of the word.
@ Ely
I agree with you 100% on the meaning. I only got halfway there, but you clarified it was withdrawal from “the workforce.” That was great.
The thing is though, while I agree retirement means withdrawal from the workforce, and neither JD or MMM are actually retired, it’s the definition of “the workforce” that’s becoming a bit fuzzy these days, which I think opens the doors for a bit of a free-for-all on the word “retirement”.
E.g,, people are having to change careers multiple times in their lifetimes. No career person stays with the same company for life. Lifespans have significantly increased, but retirement age hasn’t followed, which makes retirement funds insufficient for many. Middle class jobs are on a continuous erosion, and it seems as if entrepreneurship is the only avenue left for a lot of people as McJobs proliferate. Labor was supplanted by robots, and service jobs are also being supplanted by robots. The workforce isn’t what it was 20 or 30 years ago, and the borders that define whether one is in our out of it are becoming fuzzier.
But I still agree with you on the definition. I’m just using my lunch break to look for an explanation of the trends.
I think you and others here raise interesting points regarding prepositions. A couple of weeks ago, I was shocked to discover I’m technically a “retired” teacher. Apparently there is no category for “left the profession because I got sick of underemployment” 😉 According to my province’s professional body, you’re either “good standing” (you’re teaching and paying your fees), you’re “not in good standing” (i.e. not paying fees) or retired (left teaching, no matter what your age).
So I retired in my 20s, but I certainly wasn’t financially independent.
El Nerdo, I think you are my hero. Everytime I see an argument/discussion about the word retirement (this comes up quite often on the MMM site), I think this exact same thing. But you have such a way of putting thoughts into just the right words. If someone has had the discipline to get their finances in order to the extent that they can quit working at 30 years old, then I would say they have earned the right to call themselves whatever they want. But to call themselves retired and then get upset when someone disagrees with them, well, that just seems silly.
@ Juli – I don’t know why people are being so nice to me lately, but thanks.
Hey, Nerdo. Just resume your role as staff writer and people will pick on you again. 😉
@JD
haaa haaa haaa– nah… I’ll just stay “retired”! 😀
(Though I still have to dig ditches in the daytime, you know, to eat, ha ha.)
To me it’s working because I want to, not because I have to.
To me retirement means having no earned income. It could be good or bad depending on how non-W2 income balances with expenses and the resulting standard of living. Financial independence means being able to meet all desired living expenses without earned income, and it’s always a good thing. I don’t think I can achieve permanent financial independence because desired living expenses and returns on assets can change over time. For example a stock market crash or marrying a spendthrift may drastically change one’s financial situation.
I would say at a given point in time we can be financially independent if the ratio of our net income producing assets to desired living expenses exceeds 33 years. I’ve been there for over a decade and I still work full time at the same job I’ve held for 25 years. One thing I’d say is that work can be much less stressful and more fun when you don’t need the paycheck. I do it because I’m very good at what I do and I have found nothing better to do on my own. I’d rather go to the lab to work on some project that interests me than go shopping. I also don’t much like travel because I don’t handle discomfort, unpredictable situations, or strange places very well– to me that’s stressful.
Even though I’m doing what I want, I would not say I’m retired, although some of my colleagues look at my work attitude and consider me to be “on-the-job retired”.
I have been “retired” for 4 years. What it means to me is I work on my terms – and only my terms – and only with those who want to work with me. It keeps me active and in the game of life. Psychologically, I know I no longer have to work so that also helps me define “retired”
If “retired” means that you are working on your terms because you want to, how do you distinguish those that are working on their own terms as they want because they have a spouse who earns enough that the low-earning spouse doesn’t “have to”? I know a lot of teachers who are in this category–they work because they enjoy the job, enjoy what they do, but know if dumb politics interfere too much in their jobs(which happens too much in the school setting), they can walk. If “retired” means that you don’t need the money from your job, then all jetset kids “retire” before they even obtained a job.
I think it is better to call working after traditional retirement as “semi-retired.” It is less confusing and conveys that you worked to obtain a certain level and now are choosing to work.
I also think that semi-retired or contractor (one former client called me his “hired gun” and I liked that term) 🙂 is about as close to what my lifestyle is like today as can be described in a soundbite. When I’m not working (in my profession), I clock myself in as “on sabbatical” on linkedin.
Interestingly, Mrs. Money Mustache’s linkedin profile looks just like your average employee or realtor’s profile and not at all like that of a typical retired person or even a person who has taken any time off at all.
But by and large, I think the discussion is silly and something that bloggers use to attract attention or clicks.
Not a lot of people are going to click on an article with the headline: “Meet the man who went into business for himself at 30”. Or “meet the guy who started a blog, quit his day job to be a full-time blogger who then sold his website and is now an author/blogger”. Agree with others that it is somewhat ridiculous to call either JD or MMM retired. Unless it’s used as “retired *from*…” Really don’t know why people don’t just use prepositions…
The retirement shtick is a play on the fear in the general population that they will never be in a position to retire or if they do, it will be with a severely reduced income. I don’t know, it seems kind of wrong to attract attention and play on fears in that way. Yet on the other hand, I do think the message of living below your means and saving is one that needs to be heard and to infiltrate popular culture and if it takes obfuscating headlines to do that, maybe the means is worth the end.
Where I think that there may be a downside is that I was one of those people years ago who was so longing to be able to have the time to pursue interests outside of my career that I made some poor choices with respect to that career and it put me behind quite a bit on my savings compared to where I could be. And this was before blogs even existed. So I do think there’s a form of advertising for ER that is rampant on most FI/ER blogs that makes time off seem like some version of heaven. For someone in a late quarterlife crisis like I was that had had a couple of very bad job experiences, that was just as harmful in its way as product advertising. Actually much more harmful. I could have bought a ton of restaurant meals for all the wages I left on the table trying out my own version of Walden.
I am 57 between my husband and myself we have save well for financial independence. He loves his work. I wanted a change of pace after a 12 month retirement I am able to work PT setting my own schedule. Happiness. The challenge is with friends who are unable to do the same and feel jealous of my good fortune/planning. Money is a tricky subject indeed.
It’s best not to mince words when it doesn’t add any value. Let’s leave ‘retirement’ at it’s meaning in the dictionary, and create new words for anything else. There’s retired, and there is not retired. Simple.
If the issue we are concerned with is the definition of “early retirement” vs “financial independence”, I say we are in a great position assuming you are in the position and not reading about it.
Great article – thank you! I am in my late forties and work thirty hours per week, which means I have one full day each week to volunteer, watch movies, meet friends and generally goof off. Nice. I sometimes refer to myself as semi-retired, but in a tongue-in-cheek way. Like some of the other commenters, I guess I prefer the concept of ‘financial independence’ rather than ‘retirement’, as I don’t imagine I’ll ever stop being active and productive, even when I do stop earning an income.
It sounded all good until I read the final paragraph about needing savings of 25 times your minimum income requirement to retire. I can be frugal but looks like I’ll be living very, very, quietly. Just have to keep working I guess!
Very soon, I should be mortgage free. I won’t be financially independent, but I will have a lot more freedom and could cut back my hours, retrain, or travel more. Due to a congenital health condition, I’m not supposed to live long enough to retire, but if I do – I want to have choices. I’d hate to HAVE to work past 65 like some colleagues I have (they’re bitter about it too). However I am inspired by our previous CEO who, while no longer an “employee” of our company, is a director on many community boards, and contributes to our industry through his depth of experience. I think if he’d “retired” in the typical sense, and stopped working, he would have shrivelled up and died.
I have a question for J.D. that is somewhat unrelated to the post, and I do not mean to ruffle any feathers with it, it comes from a place of concern, not criticism. Are you going to give away all the content of the new CFO guide you just published systematically on the site? Because I paid $58 dollars for it and wish I hadn’t if it’s going to be given away for free. I think we are all very careful with what we spend our money on and I really hope to get my money’s worth out of this purchase. I love the site, and what I’ve read so far in my guide. Just curious.
Fair question, Kevin, but no worries: Not going to give everything away!
Awesome! Thanks for the answer!
Nice discussion. I didn’t think my rare response to a GRS article would cause a whole new article!
It seems that a lot of people still like the old definition of retirement – meaning “not working”, while some people think it’s fine to call themselves retired even if they are, in fact, “financially independent”, but still working. I guess people can call themselves whatever they want.
I think the main reason I felt compelled to make a point was I had just gotten through reading yet another blog (not on GRS) from a guy that “retired from the work world at 35”. Turns out, while he had saved quite a bit of money, his lawyer wife was still working – making six figures. In my opinion, he’s a self-employed, SAHD. I guess if your spouse makes enough money you can say you’re financially independent and “retired” at a young age.
Having said that, I’m not trying to say that either JD or MMM aren’t financially independent. They probably are. Not sure I’d agree that they are retired though.
Semantics make me laugh. Who cares if someone is “retired” or not?
My husband and I are self-employed. We make our money online and we are not financially independent yet – we have to work or we would run out of money before we die. We’re actually okay with that right now since we enjoy our work and our lives in general. We are saving for our future (about 20-25%), but not as much as we could be. That’s okay since we are using the rest to live the way we enjoy. We’ll consider ourselves “retired” when we no longer MUST work for the money. So in my eyes, JD is indeed, retired.
But if someone wants to argue that “retirement” is not working at all even with fun side hustles, I won’t argue with it. Fine. But that sounds really boring and I assume you only decide to “retire” when you are decrepit, otherwise you’ll be completely out of tv shows…
This makes no sense to me. As a former tax preparer (not an economist, so I don’t really give a hoot what people self-label themselves as), if you file with the government as X on your tax return but call yourself Y on the net, it’s obfuscation and it’s weird.
Just give it up already – call yourself an author, a house-builder, a blogger… What the heck is the problem with that? These are also good things to be! If I was a successful author (which I hope I will be some day), I totally wouldn’t want to be known on-line as “retired”. No no no. I’d be totally screaming from the rooftops that I had a ****ing book that sold xxx copies.
I like the consensus that seems to have developed around being financially independent enough that you don’t have to work a “regular” job to pay the bills, and any work you do is work that you choose to do because you’re passionate about it.
There is, however, one literal benchmark for “retirement,” at least as it concerns being employed by a company the government: When you meet their criteria (generally age + years of service) to qualify for their retirement benefits.
I’ve got the traditional definition of retirement: Hitting that age and taking the Social Security and pension and hoping I’ve got enough for financial independence. I got a late start at the career after getting divorced, so I’ll be looking toward that date when I can quit teaching school and spend my time with my family and my hobbies.
Good luck about that Toni. These days, I wouldn’t count on retirement plans unless I wanna spend my remaining days living very frugally.
Aren’t semantics wonderful? Isn’t language fun? So how about this as an exercise in semantics and making terms mean what you want them to mean:
I gained financial independence at 22, right after graduating from college. I secured my financial independence by doing something I loved: teaching. This has never been work to me. I love this as much as MMM loves building houses and JD loves writing about finance. Teaching generated enough passive income for me because the institutions in which I was teaching insisted on offering me money for this work. As a side gig, I took up acting, something which I did mostly as a hobby at first, since it did not generate income for some time. In the summers I took many mini-vacations, since for some reason students did not want to go to school over the summer. Spreading my passive income over 12 months helped me get through these slack periods.
I kept plying this enjoyable pastime in a few locations until I was finally teaching at a small public university. I then initiated my “buy and hold” strategy by staying put there for a number of years, building equity. By this time I had managed to merge my interests in teaching and acting, doing both at the same time. The wife and I had three children, so we made sure to cut expenses far enough that my passive income from teaching was sufficient to raise a family. We lived well, since I basically took my business to locations with short commutes, cheap housing and low costs of living.
At 42 I achieved true retirement through a process called “tenure.” Most people have never heard of it, but it’s a financial tool that guarantees a revenue stream for as long as you choose to avail yourself of it once you secure it. I continued to do work I enjoyed, took summers off (sometimes indulging my acting hobby, which itself began to generate more passive income), and every seven years have been able to take extended 7-month or 15-month vacations. Using a combination of this financial tool and leveraging my wife’s love of working with student teachers (providing additional income), we were able to generate enough passive income to send our three children to college and have them emerge debt-free.
We are both now 62, and the time is coming when we may want to slow down a little bit, perhaps to the point where I may give up my guaranteed revenue stream, since I really don’t need it anymore, and live off savings and Social Security. But when that time comes, I will be able to say I never worked a day in my life. It’s been great to have been “retired” since 22.
What is “work?” What is “retirement?” What is “financial independence?” Semantics? Gotta love ’em!
This is a great exercise. 🙂
You probably already know this, but I think the challenge here is thinking about multiple income streams. If you had a passive income stream that was capable of funding your lifestyle, then you’re financially independent regardless of whether you choose to have another income stream funded by full-time work or not. I think that’s all it really is.
But yay, semantics! 😀